The Bank of Japan on Thursday put off additional monetary easing and maintained its assessment from the previous month that the economy is “starting to recover moderately.”
Expressing confidence that the country’s 15-year struggle with deflation is seeing signs of improving, the central bank said that the “rate of change in the consumer price index has turned positive” and that expectations for inflation “appear to be rising on the whole.”
Movement of the CPI index “is on the same path as our forecast,” BOJ Gov. Haruhiko Kuroda told a news conference following a two-day Policy Board meeting.
“It should continue to gradually rise,” the BOJ chief added.
Regarding the consumption tax hike scheduled for next April, Kuroda said the BOJ “expects the government to take necessary steps” to cut back the country’s bloated debt.
The Cabinet Office is scheduled to reveal the quarterly estimates of GDP on Monday, which will be a pivotal index for the administration in deciding whether to go forward with the tax hike.
While some pundits have warned that increasing the sales tax may rob the recovery of its current momentum, Kuroda said that fighting deflation and raising the tax can be achieved jointly.
“It is extremely important for the government to lay out a plan” and show its determination in correcting the fiscal imbalance, he said, adding that it would be appropriate for the consumption tax to go up in 2014 and 2015 as planned.
The central bank said Thursday that maintaining its policy of increasing Japan’s monetary base by ¥60 trillion to ¥70 trillion per year was reached by a unanimous vote from the board members.
On the domestic economy, the BOJ said exports have been picking up and investment by the business sector has stopped weakening. Due to such factors and strong domestic demand, the economy is “expected to recover moderately,” it said.
However, on future concerns, the BOJ said there “remains a high degree of uncertainty,” including European debt issuance and the pace of the U.S. recovery.